Q2 2023 Archer-Daniels-Midland Co Earnings Call
Excuse me bust investments import capabilities to produce record origination volumes out of our Brazilian facilities.
Expanded our regenerative agriculture partnerships and.
Liberty <unk> ability to flex crush capacity to capitalize on higher canola crush margins.
In the latter instance reflect more than 300000 tons of capacity and captured an additional $40 per metric ton of margin.
Incredible hybrid solutions, so tissue investments in optimization and modernization allowed our team to manage increased demand for liquid sweeteners.
Growth in bio solutions revenue and operating profit and produced record results were $1 million in international coal businesses.
In nutrition.
Our unique go to market strategy continues to drive a larger sales pipeline and deliver double digit growth in the flavors business.
Thanks to an impressive performance in EMEA, our new wins in North America.
When you combine all of these aspects are gross Adm's foods business portfolio is.
It's clear how we are able to convert challenges in one geography product or business segment into value drivers in another.
Next slide please.
Let's review the factors that we see as important drivers for a strong second half finished in 2023.
We expect continued strength in Brazil origination for the remainder of the year.
Our buses strategic investments import facilities in Brazil.
Optimize origination network and deep connection to our global trade in destination marketing teams will allow us to export strong volumes capitalizing on the record Brazilian soybean and corn crops.
Bio fuels the demand continues to remain strong.
Through the first half of the year, we saw robust margins from biodiesel strong demand for ethanol and an increasing demand for vegetable oil from renewable green diesel.
And we expect these trends to continue in the second half.
Our spirit with the North Dakota processing facilities are scheduled to start up in Q4.
Adding one 5 million metric tons of annual soy crush capacity to our portfolio.
Producing low carbon intensity soybean oil.
Our JV partner and marathon nearby renewable diesel facility.
Projects like this will support a growing demand for renewable diesel unsustainable aviation fuels throughout the industry.
We also see continued resilience in food demand for core products.
We expect a continued solid margin and volume environment for sweeteners starches and flowers.
We are beginning.
Turning to convert our pipeline of wins in human nutrition into operating profit.
Whether there are some factors that have hindered growth in the portfolio. We believe positive momentum from flavors is a predictor of a healthy rebound.
We also see continued commodity market dislocations in the second half.
ADM has the unique ability to execute with agility in a dynamic environment.
Our team utilizes our unparalleled global asset footprint and end to end supply chain to adapt to evolving market conditions and meet global food security needs, while driving strong returns.
Lastly.
Our balance sheet remains healthy and we're flexing it toward organic investments and opportunistic share buybacks.
We continue to deploy capital to drive organic productivity and innovation oriented programs, such as spirit Valencia on Marshall as well as invest in our plant automation efforts and our broad decarbonization initiatives.
And our $1 billion in share repurchases in the first half highlights our confidence in the strong cash generation and growth potential of our company.
As we look at the back half of the year, we intend to continue our share repurchase program.
We feel that these factors are fundamental drivers of our strong second half performance.
I am proud of our team has delivered halfway through the year and even more excited about the opportunities presented in the second half.
And what our team can deliver.
Taken collectively we are raising our revenue expectations for full year 2023.
With that let me turn it over to <unk>, who will go into more detail on the results of operations.
Thank you everyone. Please turn to slide six the AG services and Oilseeds team continues to deliver exceptional results in a dynamic environment, leading to an extremely strong performance in the first half of 2023.
Passing the outstanding first half of the prior year.
Q2 results were strong, but slightly below the prior year period.
Act Services' results were in line with a strong second quarter of 2022.
South American origination results were higher year over year as the team delivered record volumes and higher margins on strong export demand.
Leveraging our strategic investments to expand port capacity to capitalize on the record Brazilian soybean crop.
Results for North America origination was slightly lower year over year, driven by lower export volumes due to large South America supplies.
Our execution in destination marketing as well as effective risk management continued to deliver strong global trade results, though lower than the record quarter last year.
In our crushing sub segment results were much lower than the record results from the second quarter of last year.
Global soy crush margins remained strong but were lower year over year in all regions due to softer demand for both meal and oil and a tight U S soybean carryout.
This was partially offset by strong soft seed margins and higher volumes supported by a strong Canadian canola crop and use of our flex capacity in EMEA.
Additionally, there were approximately $195 million of negative mark to market timing effects in the current quarter that are expected to reverse as the contracts execute in future periods.
Refined products and other results were significantly higher than the prior year period, achieving a record second quarter.
North America results were higher driven by strong food oil demand and improved biodiesel volumes.
In EMEA strong export demand for biodiesel and domestic food oil demand supported stronger margins.
Additionally, there were approximately $90 million of positive mark to market timing effects in the current quarter that I expect it to reverse as the contracts executed in future periods.
Equity earnings from Wilma were lower versus the second quarter of 2022.
Looking ahead for the third quarter, we anticipate solid results in AG services in Oilseeds, we expect strong demand for grain exports to be heavily weighted towards South America, and our Brazilian origination footprint.
We anticipate strong volumes and margins for soy and canola crush based on the Argentine crop and improve improving demand outlook for meal and oil.
We expect <unk> to perform well, but have significant reversals of timing impacts from the second quarter, leading to lower net execution margins.
Slide seven please carbohydrate solutions delivered strong results in Q2, but lower than the record second quarter of last year.
The starches and sweeteners subsegment, including ethanol production from our West notes capitalize on a solid demand environment during the quarter, North America, starches, and sweeteners delivered volumes and margins similar to the prior years and ethanol margins were solid as industry stocks moderated, but lower relative to the prior year.
Q2 results were negatively impacted due to unplanned downtime at one of our corn germplasm.
In EMEA the team effectively managed margins to deliver improved results the global wheat milling business posted higher margins supported by steady customer demand.
Bio solutions continued on its excellent growth trajectory with 22% revenue growth year over year.
Vantage corn processors results were lower due to lower year over year ethanol margins.
Prior year period also included a onetime $50 million benefit from the USDA biofuel producer recovery program.
We continue to make progress in our initiatives to Decarbonize, our carbohydrate solutions footprint, including our definitive agreement with tallgrass to sequester carbon from our Columbus, Nebraska facility and continued progress on Decarbonizing, our Decatur complex through additional carbon capture and sequestration wells as well as ultra.
Low carbon intensity electricity and steam generation.
These are key steps in enabling us to produce low Ci feedstocks, we use in many applications for our major CPG customers and underpinning our growth opportunities such as SaaS bio solutions, and our lactic acid poly lactic acid joint venture with LG Chem.
Looking ahead for the third quarter, we expect continued steady demand and margins for our starches and sweeteners and wheat flour products.
Ethanol margins are also expected to remain solid.
On slide eight Utah.
Nutrition results were significantly lower than the prior year's record quarter.
Human nutrition results were slightly up year over year on a constant currency basis.
Our flavors business posted record results in Q2 growing revenues and EBITDA margins due to improved mix and pricing in EMEA as well as improving demand in North America.
Flavors will be a significant growth engine for human nutrition for the remainder of the year and will act as a pace setter for the rest of our portfolio.
Customer innovation and beverage is beginning to accelerate and our value proposition is driving our sales pipeline to its largest ever.
Growth in flavors was offset by lower year over year results in specialty ingredients. While there has been softening of demand for plant based proteins, particularly for the alternative meat space other categories like alternative dairy snacks and baked goods as well as specialized nutrition are providing growth opportunities.
Although still a small contributor health and wellness is seeing demand recovery in probiotics and is benefiting from geographic expansion opportunities offered through <unk> global footprint and customer relationships.
Our largest challenge in 2023 has been in the animal nutrition business were significantly lower amino acid margins and softer global feed demand has affected volumes driving much lower results.
Over the past several months, we have made important adjustments to align the business with this environment, including simplifying our brands and go to market strategy consolidating facilities and optimizing our footprint right sizing the workforce in association with these changes and aligning the reporting structure to enhance synergies.
We're also refocusing our efforts to increase offerings into higher margin specialty feed ingredients areas.
We believe these actions will lead to improved commercial and operational performance supporting profitable growth when market fundamentals improve.
When looking at nutrition as a whole we now expect 2023 results to be similar to the prior years as we expect growth in human nutrition to be offset by lower results in animal nutrition.
However, given the increase in customer innovation, we've seen in our flavors business and our recent wins and pipeline growth across human nutrition as well as the actions we are taking in animal nutrition.
We remain confident about the future outlook and growth prospects for nutrition.
Slide nine please.
Other business results were significantly higher than the prior year quarter due to improved ADM investor services earnings on higher net interest income.
Captive insurance improved on premiums from new programs, partially offset by increased claim settlements.
In corporate results net interest expense for the quarter increased year over year, primarily on higher short term interest rates unallocated.
Unallocated corporate costs of $262 million was similar versus the prior year as lower health insurance costs were offset by increased global technology spend.
Other corporate was unfavorable versus the prior year, primarily due to foreign currency hedges.
We still project corporate costs to be approximately $1 $5 billion for the year.
The effective tax rate for the second quarter was of 2023 was approximately 18% in line with the prior year for the full year, we still expect our effective tax rate to be between 16 and 19%.
Next slide please.
Through the second quarter, we had strong operating cash flows before working capital of $2 5 billion.
We allocated $600 million to capital expenditures as well as returned $1 5 billion to shareholders through share repurchases and dividends.
We continue to have ample liquidity with nearly $13 billion of cash and available credit and our leverage ratios, although with an adjusted net debt to EBITDA ratio at one point it out.
Our strong balance sheet and credit ratings provide a stable financial footing for ADM to pursue our strategic growth initiatives, while also returning capital to shareholders.
We still anticipate $1 3 billion.
Capital expenditures in 2023.
As Ron mentioned, we have already completed the $1 billion of share repurchases that we announced in January this year, we intend to continue our share repurchase program subject to other strategic uses of capital.
Based on our very strong first half we are raising our full year earnings outlook to around $7 per share with potential for even more upside.
Thank you Vikram.
As we wrap up today's call. Let me highlight a few opportunities that we're excited about our CGM continues to execute our strategic agenda.
We're seeing value generation today on health plans to accelerate.
Let's just start with Digitization and automation.
Our ongoing work to modernize and automate our operations is ramping up.
Eight current implementations across North America, and Europe are generating millions in run rate benefits.
And we have 10 more starting in Q3 with the expectation of similar scalable benefits.
Our one ADM program is accelerating our decision, making and analytics capabilities across the company.
Helping us find faster path to productivity.
With our HR systems now in place globally. Our next milestone is bringing part of the nutrition flavors business onboard.
In Latam, we have implemented technology to optimize trade and commercial processes digitizing.
Digitizing freight and logistics contracting.
All of this is helping us reduce costs and make better faster decisions to deliver the value to ADM and our customers.
Sustainability and de Carbonization have opened new avenues for growth across the enterprise, while ensuring we are taking the necessary actions on our own footprint.
Our strive 35 program continues to deliver important progress and our recent sustainability report shows our efforts in greenhouse gas emissions waste reduction nobody 40 station and crop traceability achieving targets ahead of plan.
As we continue to support our most significant customers with carbon advantaged crop sources.
<unk> recently announced regenerative Act program targets 2 million acres in 2023.
With an additional 2 million acres by 2025.
With the recent <unk> agreement and permit submissions Sidoti from ADM facility in Nebraska, Iowa, and Illinois is now targeted to be captured under stored safely impediment in Italy underground within our expanded indicators Ccs well capacity.
This helps decarbonize, our customers' budget change on our own across important opportunity spaces like bio solutions on sustainable aviation fuel.
And we are continuing to invest in the next phase of innovation.
Our new Decatur protein solutions Center is engaging Adm's World class science and technology capabilities to deliver on two models most important consumer nutrition trends.
Collaboration between ADM and our venture partners take us beyond today's alternative protein sources to help address critical areas of sustainability wellness and affordability.
Leveraging our deep fermentation expertise and capacity is positioning us to scale. The next generation of food.
<unk> fuel fabrics and other industrial products with key partners.
The combination of technology, alongside global trends and sustainability food security and wellbeing is transforming the food and agriculture industry.
This space since the last century.
And ADM is at the forefront of this transformation and connected growth opportunities, which give us even more confidence in our long range growth plans.
Thank you for your time today because of him and I look forward to your questions.
Alex Please open the line.
Thanks Keith.
I'll ask a question you can press star followed by one on your telephone keypad.
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Please limit yourself to one question before re entering the queue. Thank you.
Our first question comes from Ben.
Barclays.
Your line is now open. Please go ahead.
Thank you very much good morning, Juan good morning Vikram.
Good morning morning.
So I'd like to just.
General question on obviously like the puts and takes you're raising your guidance towards the higher end of 6% to seven was now around seven and obviously you had a very strong first half, but then at the same time looking for a little more softness in nutrition. So maybe help us understand how you feel about just the <unk>.
Crow picture in general demand what are the geopolitical assumptions that you have behind your outlook and how you feel about the second half and then also beyond maybe into into 2024 as it relates to general demand in an environment, where we're in right now thank you.
Sure Ben.
Yeah of course first of all we're very proud of the results. We are accomplishing the quarter on in the first half and certainly we are more confident about.
The environment ahead of us for ADM.
I would say, let me highlight some of the reasons for that.
Certainly crush margins.
We have started to pick up as we predicted before.
They continue to get better board crush has been firmer and milled basis has been stronger than been basis have dropped in the U S. As.
As we have anticipated I think there is a shift in which the world needs more protein do we need more meal and we are going to cover for Argentina shortcomings. This year. So.
That is happening as we predicted.
Certainly there's going to be very good for Q3 and Q4.
I think we're seeing this huge crops in Brazil.
We see the Brazilian port congestion drive lowered interior basis, and allowing us to procure cheaper grains given margins to those companies that have invested in the infrastructure to be able to capitalize on that which we did both in Santos and embark arena in Brazil. So.
That's playing very well for us.
The last time, we talked.
<unk> inventories were around 25% to 26 million borrowings.
Now we are at the end of June with about 22.
There is we see a strong spot demand for ethanol and corn tough to buy so that has made margin strengthen and theyre holding so we are positive about ethanol margins continued in that.
Regardless, we continue to see this trend in Biofuels, we have a strong book of biodiesel for the.
Quarter so.
Good about that.
We are seeing lower recession, China season.
U S consumer very resilient in that spring and resiliency in our.
Core products for food demand and we see that in color solutions, whether it is sweeteners and starches.
Or whether it is in meeting so.
And you highlighted.
Of course, and Vikram when deep into that the issues in nutrition I would say.
We feel good about our value proposition continues to resonate in flavors.
Flavors is more beverage kind of business if you will.
Innovation will help us a little bit faster there. So we see our pipeline continues to grow that bodes very well for what we know.
The potential revenue in 2024, so again, we continue to align the company to these three trends food security.
With all the geopolitics and the weather it makes ADM assets more valuable and gives us more margin in destination marketing services for example, we.
We see health and wellbeing and that continues to show in all the flavors innovation that we're seeing with our customer.
We see the sustainability trend driving all these opportunities and decarbonization.
I will say, we shouldn't forget when we mention these that either in automation on decarbonization, we are at the early unions move.
Years progress for the industry on what ADM, So I think thats, where.
We are feeling very good about.
'twenty, three and we feel even better about the future.
Okay perfect. Thank you very much.
Thank you.
Next question for today comes from Ben <unk> from Stephens.
Your line is now open. Please go ahead.
Hey, good morning, everybody. Thanks for taking my questions.
Volume follow up just on the.
On the nutrition business and maybe to the extent that you can.
Talk a little bit about the cadence as we move through the back half of the year.
I appreciate the updated comments on overall results being flat year over year.
But yes there.
There is with animal nutrition and expect it to be down year over year.
There is a pretty substantial ramp in the human side of things, maybe if you could talk a little bit about the visibility that you have into that and then the extent you can parse between <unk> and <unk> as you see it today that'd be helpful.
Yes, Ben So I think let's just take a few minutes to talk about why our guide has gone from 10% growth to flat animal nutrition cyclical weakness is persisting for longer than we anticipated consumers continue to trade down from higher value more feed intensive to lower value less feed intensive protein.
<unk> re formulation to reduce feed cost is also impacting volumes.
Plant based proteins, particularly in the alternative meats continues to be softer than anticipated the destocking actually still continuing in that category and the broader market growth is also moderated which we had signaled before.
Third the demand fulfillment challenge in pet solutions are taking longer than anticipated to resolve.
The delay was driven primarily by slower than anticipated integration of the recent small business acquisition that we made in North America and if you remember we had we had colgate and that delayed also the integration. So we're working through that but.
But what are we doing and that's important as you think about the back half as well as the future flavors strong pipeline and win rates, we talked about the largest ever pipeline. We've had flavors actually grew profits in the first half 9%, 20% in Q2, so thats a very good sign.
Of the recovery, we have seen in parts of the human nutrition business. The other thing that's important to note flavors actually contributed almost 50% of the overall operating profit for nutrition in the first half. So that's an important signal. If you think about the future growth of nutrition, yes that was primarily driven in the beverage category, but we see green shoots of opera.
<unk> in the food category as well.
In the Si side, we are leveraging our <unk> capabilities to accelerate penetration into some of the faster growing categories. I mentioned alternative spaces alternative meat has been soft, but alternative dairy and some of the other side. The other category is actually growing and we are launching our takeda protein and <unk>.
<unk> Center in Q3, all of that given our CDN capabilities allows us to pivot to categories that are growing and that sometimes takes time, so we anticipate that recovery possibly to come.
More in the 2024 timeframe lessen in the back half of this year in animal nutrition, we are taking actions to improve margins cost and product and footprint.
Rationalization to improve margins and also to drive profitable growth as the markets recover. So we feel good about the recovery as the as the market recovers and in parallel what we're doing is looking at the specialty part of animal nutrition portfolio to leverage our human nutrition, <unk> and go to market capabilities to be able.
To drive increased penetration there on the pet side demand creation is going to take a little longer possibly into the back half of this.
This year and into 2024, but overall, we clearly see signs of recovery and our forward outlook for nutrition is still strong and robust in terms of growth. This year given some of the challenges. We faced we expect it to be similar to last year. One I don't know if you want to add some longer term perspective.
Listen Ben.
Because I've said, we continue to be very positive we look at these remember when we started the nutrition business.
Trying to build into their best Nutrition company in the World.
We ask our team that we're going to measure them by two factors, one was growing faster than market and in markets, where the customers are still moving and innovation come in like in flavors, we seen that we're growing faster than market and you can see by the double digit growth that we have so far and then the other.
Thing that we said was EBITDA margin on sales growing and we grew EBITDA margin on sales in flavors, So I think that.
In the others I think vikram because this industry is going through.
A difficult destocking here and there.
Has it been some <unk>.
Self inflicted things like the integration of these small facility. So I think we're working through some of our growing pains as we build the portfolio, but I think the important thing is our innovation system, our value proposition to bring new recipes to customers faster than anybody else can.
<unk> to outperform the industry and that we're seeing in the results when customers have projects like in beverage and all that we accept when customers are flat or destocking.
It takes a little longer we still expect that trajectory to be similar in that regard.
Okay very good my second question is on Starches and sweeteners you noted similar volumes and margins in the second quarter. You did have a plant that was down.
Unexpectedly could you talk about the impact of that.
That's discrete to the second quarter, and then you point to solid margins for sweeteners and starches in flower in the back half of this year would you expect would you characterize that more specifically has similar margins and volumes again or do you expect an improvement in the back half of the year. Thank you.
So let's talk about the.
Jim Crush facility outage in April we had an incident at one of our grain elevators at the west plant within Adm's processing complex indicator.
This negatively impacted the carbohydrate solutions Q2 results by a significant amount.
<unk> was actually sold into feed markets as our wet mills was slow to reduce the overall exposure to jump lowering also ethanol production volumes at a time when ethanol margins were strong we anticipate this to come back in Q4. So yes, Q2 was impacted I won't get into the specifics, but the fact that they do.
It was significant enough for us to call. It out it means it was a meaningful number but it is going to come back in Q4. So therefore based on that you can expect some seasonality some some shift.
From Q2 to Q4 as a consequence of that for the full year, we still remain very.
The outlook for the full year still remain very strong the sweeteners and starches and actually also the global milling volumes have been very resilient, we have seen some softening in the specialty side of the portfolio, but that's been more than offset by mixing mix in margins. So I'd say overall the outlook is.
And yes, we did have a material impact a significant impact due to the con jump in Q2.
Okay, Thanks and congratulations.
Thank you.
Thank you.
Next question comes from Tom Palmer of Jpmorgan Tom.
Tom Your line is now open. Please go ahead.
Good morning, and thanks for the question.
Perhaps we could just talk through the moving pieces as we migrate to the North America harvest.
Seen crush.
<unk> in the U S strengthen especially in the past month or so.
It looks like we've seen maybe just a little bit of weakening in other regions of the world I think often.
When you see a weaker than expected supply coming out of the country. Other regions of the world often benefit and at least up to this point and I know we're ahead of the harvest we haven't seen that.
Necessarily in margins I mean, how do you guys think about as we can.
Think about the balance of the year kind of original expectations for crush progressing.
Yes, Thank you Tom.
As I said before I think that when you see the world needs more protein and certainly.
We can see that given the Argentine GAAP, which is.
Produced properly.
2000, 25 million tons less soybeans on maybe the award was expecting them to produce does relocating crush threat locating crush to two places is relocating crush to Brazil and is relocating crush to origin to U S. So of course, the timing of that is different and so we see that in.
The margins that we see for the U S coming into Q3 and in Q4.
Yeah.
Demand continues to be strong for meal.
There wasn't so much protein that is not going to just be soybean meal, but theyre going to be other types of.
<unk>.
Protein feed whether it's.
Feed wheat and all of that so.
When you take that.
Combined with the increased demand from fuels, but also oils for food consumption, we expect.
Soybean oil demand to go up.
8% is like about 6% coming from food and maybe 2% coming from fuel, but my point is.
Crush margins are supported from.
Everywhere of course as the World gets.
To try to cover for these soybeans.
The margins will be where you are closer to the physical product to have access to the physical soybeans and that's what ADM footprint in ADM combined with origination and global trade, where we excel so.
So I think the team had a great.
At first half and they are expecting a great second half and we don't see anything that can derail DS four.
Quite some time.
Hope that provide some perspective.
Thank you.
Next question comes from Manav Gupta of UBS your.
Your line is now open. Please go ahead.
Hi, Mike quick question here is.
In the second fees the number of new clients.
On the R&D side will start up in the second half of this year.
Including one of your partners, just starting up a bigger plant on the West coast. So I'm just trying to understand from the demand perspective of soya bean oil.
Do you expect a much stronger demand environment than what we saw in the first half of this year.
Yes, I think that.
We have all these plants that are coming that had been announced and of course, we're looking all the time the probability of those plans coming sometimes when you're building an industry note everything counts at the right time, but as you said before there are.
Two or three large plans coming now in the in the second half and that will continue to increase.
The demand.
Of course, our plant in our partner comes with our crush capacity as well that we're building this $1 $5 million per year.
So but.
When we look at these we believe that.
At the end of the day that demand will come through at the end of the day, we will have enough garage for soybean noise to participate being maybe 60% of the overall pool.
Of feedstock needed.
And we think that the industry will continue to grow but we continue to need to attract other feedstocks for us to fulfill its potential so the.
The industry is going to get tight.
Need capacity technology and capabilities, if you will in order to deliver that but thats. The way you make progress building, a new industry and going through an energy transition.
Thats very favorable for ADM and the thing that.
We are very pleased to bring in spirit.
One time for the harvest on budget.
We are very pleased the way the team has managed that implementation.
Thank you.
<unk> comes from Adam Samuelson of Goldman Sachs.
Adam Your line is now open. Please go ahead.
Yes, Thank you and good morning, everyone.
Good morning.
Hi.
Yes, My first question, maybe coming back to nutrition.
And I think about the revised outlook for the year.
Now flat.
How should we think about the.
The pathway $20 25, and kind of the.
The achieve ability.
The prior 2025 target.
With $1 2 billion.
In that segment.
And maybe the split between human and animal within that range.
The animals.
More pressured than the human nutrition, So just help me thinking about kind of.
As we think about the 'twenty three targets kind of where you are on 52, what was implied in your plans to get to the 2025.
Yes.
Yes so.
When we put the 2025 goals.
Let me let me go back on the comments I made before when we look at our plans we look at how do we grow faster than market and how do we implement projects and target applications to continue to grow EBITDA margin on sales.
The two businesses animal nutrition and <unk>.
Human nutrition had different profiles and different goals in that regard. So what you will see the final number is a combination of all those plans rollout.
<unk>.
In the human nutrition margins are much higher and has continued to make it better and more stickier to customers as we develop better solutions in animal nutrition was a margin up story since we are coming from lower margins.
So when you think about our numbers are a combination of applying our growing faster than market and our EBITDA margin on sales to a market number of course this industry as you can see by our sales and our competitors who have been through tough times, whether it is because customers are.
These are not innovating fast enough or destocking at this point in time.
And making sure they have their supply chain in order there so.
To the extent that those projections are going to be reduced.
Our percentages of applied to those numbers will be smaller number. So we haven't gone through that because to be honest. We're looking at how do we address our current challenges. So we're not that worried about 2025 right now we want to make sure we make all the adjustments that we need to make and maybe talk about the adjustment, let me talk a little bit about.
Animal nutrition animal nutrition as we become more.
Into the business. If you will we know there is a commodity part and the reset of specialty products. The specialty bought matches very well, which what the playbook that we have in the human side and thus far is growing and we will continue to accelerate and become said before we are.
Purpose in resources to more of that there is a commodity part of that that at the beginning when we put the two businesses together, we thought it was going to be a good way to open.
Doors, if you will for the innovation.
They have different dynamics and so we are looking at.
Those different dynamics, and how do we need to readjust either the capacities or some of the.
Some of the people associated with that and the intensity of resources in that part of the specialty part is not coming as fast as we thought so we need to deal with the volatility of the commodity part was the specialty part is a little bit.
Slower so as those things balance we are adding productivity to the commodity part of animal and we are adding more resources to the specialty part in that in London.
And I think that we believe that that will take us through.
So again the growth rate into 2024 for those businesses, but we're going through that.
We will cover all of that also.
Adam.
In Investor Day is we will have developed more plants, but.
Rest assured we're very active in our interventions and we're testing different options in order for us to manage this better.
This is also.
Sometimes difficult to characterize on something specific.
And applied globally because.
We have.
Operations in Southeast Asia, we have operations in Brazil, we have operations in Mexico, and Europe , and the U S and all those things have to be put together are not all the dynamics in both those markets both perfectly align and synchronized so.
That's why I think we need a little bit more granularity in December to be able to articulate that which is.
A little bit more difficult to penetrate.
In a call without any numbers those slides.
Thank you.
Our next question comes from Andrew <unk>.
Bye.
Andrew Your line is now open. Please go ahead.
Okay.
Hey, good morning, Thanks for taking the question.
I wanted to ask about your view on the AG services strength durability.
It seems like we've got.
Global grain supplies than we maybe going to refine those premiums that are <unk>.
Record crush margins, obviously in the U S that are very strong I know, maybe Argentina comes back next year, but.
It doesn't feel like these are things that even though you guys were just 23 things that would and just because the calendar flips.
How long do you think your strengths in AG services can continue for what.
I guess, we'd hear the risks because it seems like it's gone up should extend so curious for your perspective there.
Thank you Andrew.
We have had.
Two great years of crops in Brazil, and we're probably going to have a strong crop in the U S.
Volumes are good for us so we like when there are volumes.
Of course, the World has become as you said more complicated place where east geopolitics and we can see unfortunately, what is transpiring in the black sea or the weather there has become more violent and more volatile.
So we go from Barry.
Dry anemia that impacted a lot of locations around the world and then we may go into a more extreme El Nino and you can see the temperature record temperatures that were dealing with right now.
So I would say all that volatility and all of that uncertainty increases.
The value of our investments when we invest more ports in Brazil, we see delivered I should add that test today.
Of course, we're going to we're going to probably export a little bit less from the U S. Because we are going to export more from Brazil, and that probably is not going to offset each other perfectly. So maybe ex services earnings will be down a little bit based on that but on the other hand, the big availability of crops in the U S will help our processing businesses.
Yeah.
If you look at this.
Strength in oilseeds is because.
So <unk> been basis lowered us.
<unk> been meal basis have strengthened so that's where we get the margin expansion.
The World also is growing.
Into decarbonization and thus affecting also.
The grain industry the grain industry.
And we are leading that with our regeneration program in <unk>, but more and more people one crops grown in a certain way.
The claims for deforestation.
Limits are also increasing so I would say you see a future in which may be less land will be brought into production as we're climbing in the number of people in the world to into 10 billion people, but this is not just the number of people. If you think about the protein consumption.
The U S.
In the U S.
Consume about 270.
Pounds per year per capita.
Of proteins, China is about 170, the world on Alberta is a hungry.
So if the world of work to get to the average ratio of China, We need 70 pounds per person per year. If we were to get to the level of the U S. And these <unk> hundred 70, <unk>, that's a huge amount of grain that needs to be produced in northern expanding significant amount of land. So there is a lot that we will have to go through.
So you will continue to have given the weather and the.
<unk> politics, you continued to have pockets of tightness, where our footprint in the world.
All the plans that we've been blessed with the ports and the logistic assets on our destination marketing people on our origination marketing people.
It will be more valuable into the future no doubt as we tried to secure food for the local population.
Thank you.
Our next question comes from Salvator Tiano from Bank of America.
It is now open. Please go ahead.
Yes, thank you very much.
On the crush margins can you provide a little more color on why.
Setting aside of course, Argentina, Uruguay and Brazil.
Europe the margins have come down recently and also now with the crush margin curve, having gone up at least the U S substantially.
Where do you stand with your forward hedge book for the balance of the year and what what's kind of your approach going forward.
Okay, Yes.
So.
As you said crush margins have weakened maybe in recent weeks.
Two maybe 20 to $30.
In Europe , especially.
As we transition through old to new crop in the U S.
Global oil basis, maybe.
Weaken a little bit with February U S oil.
We continue to bring.
Biodiesel from there so that continues to add value to their European businesses, but.
Maybe the.
The.
Routing Indus.
Industries, a little bit weaker in Europe .
In Brazil, I think Brazil, if I have to say something.
Maybe Brazil is trying to figure out how to accommodate the production of soybeans and corn dig out. So there are a lot of logistics challenges in Brazil and.
And I think that has made the test.
Yes.
Pressured the beans basis country side.
Soybean oil I would say is pressured in Brazil, because of lack of domestic demand.
Brazil is one of those.
Places, where you have export markets, but you also have a domestic market and I would say right now the domestic market and maybe for soybean oil is a little bit weak and without the huge benefit we have with the.
Biofuels policies here in the U S and Brazil, maybe a little bit weaker, but I would say.
Realistically those are the two places that will pick up the slack that Argentina will dig out that Argentina life. So those are where the beans are so we expect higher crushing rates for both Brazil and the U S.
Our final question for today comes from Steve Haynes of Morgan Stanley Steve.
Steve Your line is now open. Please go ahead.
Hi, Thanks for taking my question, just maybe two quick ones.
Nutrition.
Were you able to maybe put a dollar amount to the cost savings.
The various kind of actions you're taking on the animal side of things.
In regards to kind of what's baked into the 2023 guide and then and then secondly can you just maybe just a quick little.
A little bit more detail on what some of the inventory losses.
Thank you.
Yes, so on the animal nutrition side, yes, we've taken a lot of the actions over the course of a latter part of last year as well as ongoing this year.
Im not going to call out specific numbers, but I would tell you that.
Majority of those results should be realized in the back half of the year. So it's going to be obviously annualized is do you think about it but the full benefit would likely come in 2024. So you should see an uplift as a consequence of those actions coming on a full year basis. In 2020 forward you will see a partial benefit clearly in 2023 as well.
<unk>.
On the inventory losses related impact that we called out it was again.
Some of the acquired inventory as part of the integration office facility that we had referenced where we've had some integration challenges with the small business that we acquired in 2021. So it is related to some of that.
Acquired inventory and some contamination that we saw it. So that's it was it was material enough to pet solutions. That's the reason we called it out clearly not material from an overall ADM perspective.
Thank you at this time, we currently have a nice set of questions. So I'll hand back to making bridge any further remarks.
Thank you for joining us today, please feel free to follow up with me. If you have any additional questions have a good day and thanks for your time and interest in ADM.
Thank you for joining today's call you may now disconnect your lines.
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Yes.
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Okay.
Sure.
Sure.
Okay.